Stocks to Avoid #4: Sirius XM (SIRI)
Sirius XM (SIRI) has been an amazing and fun-to-watch success story, inventing an industry that didn’t exist a decade ago, and growing its user base to its current following of about 25 million subscribers. The company’s revenue has grown accordingly, and SIRI is on pace to generate $3.8 billion this year.
However, times — and technology — are changing, and 2014 might be the year that satellite radio finally has to fend of more competition than it’s adequately equipped to do.
That competition? A combination of Pandora (P), Spotify, iTunes and, more broadly, mobile Internet. Apple (AAPL) and iTunes has been around for a while, as has Pandora, and neither has been able to unseat Sirius XM as the king of portable audio. As of this year, however, most mobile phones in the United States are web-enabled smartphones, which can largely accomplish the same thing Sirius XM receivers accomplish (yet are far more portable and flexible than satellite radio receivers). Mobile broadband is becoming prolific too, and it’s even more portable than satellite radio.
Perhaps most alarming of all, smartphones are taking aim at Sirius XM where it enjoys its strongest hold — in your car. Though it has been around for a while, the technology used to connect an automobile’s audio system to a smartphone — through programs such as Microsoft (MSFT) Sync in Ford (F) vehicles — is gaining popularity. That means Sirius XM will be forced to compete more with the quality of its programming rather than the convenience of its technology.
It’s not clear whether its programming alone will keep subscribers interested enough in Sirius now that a viable alternative exists. SIRI has proven it can draw a crowd even in the face of competition, and considering about 60% of all new cars are now manufactured with a Sirius XM receiver built-in to the dashboard, the company will find it has a steady flow of new prospects trying out the service.
Still, the issue for investors is that the stock has presumed faster growth than Sirius is likely to be able to generate now that mobile Internet is becoming common.
This proverbial writing on the wall might be why SIRI stock has crossed under its all-important 200-day moving average line this month. So it could get much worse before it gets better.